How To Make The Capital Purchase Program Benefit Taxpayers

Despite all the rhetoric about protecting taxpayers who are paying for this massive government bailout of the banking system, not one of the measures proposed so far does anything to secure a profit for taxpayers. The government’s revenues may increase but that will just be spent by the government. There’s only one way to really protect the taxpayers—pay us a dividend.

The government proposes to make a $250 billion investment in the preferred equity of banks. The preferred shares will pay a 5% dividend, which would be $12.5 billion each year if the Capital Purchase Program is fully invested. There are about 100 million taxpayers—that is, people who had actual tax liability—in the U.S. So the government could pay every taxpayer a dividend of around $125 per year.

Of course, we should probably adjust this program for the government’s borrowing costs and for the costs of administering the program. Let’s say the $250 billion costs 2% a year to carry and an additional 0.5% to administer, reducing the return on capital by half. That means taxpayers will get a $60 check each year.

Now $60 won’t exactly make us rich but at least the money will be spent according to market processes rather than political preferences. When aggregated, that will mean taxpayers will have about $6.5 billion more to contribute to our economy, rewarding economically productive activity rather than politically popular causes.

So how about it? If this investment is really going to benefit the taxpayers, let’s give the taxpayers the dividend.

How To Make The Capital Purchase Program Benefit Taxpayers

Despite all the rhetoric about protecting taxpayers who are paying for this massive government bailout of the banking system, not one of the measures proposed so far does anything to secure a profit for taxpayers. Here's one plan that would work: give the taxpayers a dividend!